Big bonuses for Wall Street staff as stocks reach 16-year high
SHARES of US financial firms just staged their biggest annual rally since 1997, creating a bonanza for Wall Street employees who receive bonuses in deferred stock -- though the new year doesn't hold the same promise.
The KBW Bank Index of 24 lenders increased 35pc in 2013, the most in 16 years. All of its companies rose, the first time that's happened in a decade. Meanwhile, the Standard & Poor's 500 Capital Markets Index of 13 securities firms and asset managers surged 49pc, the most on record.
The rise in share prices began in October 2011 and has proved to be a real earner for traders and dealmakers at firms like Morgan Stanley which retooled bonuses after the financial crisis to include more deferred stock.
Global regulators pushed banks after the 2008 crisis to overhaul bonuses by delaying payouts and making them subject to clawbacks. The shift was meant to discourage employees from taking massive risks for quick rewards. But the deferred-stock packages ended up benefiting workers who would have otherwise opted for cash, said Steven Hall, founder of a New York-based executive-compensation consulting firm.
Most large US banks now make stock the biggest piece of their chief executive officers' compensation, setting it to vest over years. For Goldman Sachs chief executive Lloyd Blankfein (59), restricted stock accounted for 63pc of his $21m (€15m) pay package for 2012, not including a $5m cash incentive tied to future performance, according to company filings. Shares of the New York-based firm rose 39pc last year, boosting the value of Mr Blankfein's award for that year by $3.4m.
But gains may now slow as bank valuations near or exceed historic norms and the US Federal Reserve phases out a policy that suppressed interest rates.
"It could be difficult for stock prices to generate similar gains in 2014," said Terry McEvoy, an analyst at Oppenheimer & Co.
Financial firms are still operating in "a challenging environment to grow revenue", he said.